Everyone has their own version of it: that one bet that came agonizingly close.
Maybe you remember it because it was for a massive potential profit. Maybe you remember it because it almost proved your thesis was right.
Regardless of the reason, that "near miss" sticks in your brain for a specific behavioral reason:
Deprival-Superreaction Tendency
This mental model highlights two human cognitive biases:
1) Pain of loss vs. pleasure of gain: the loss of something (such as money or other objects) hurts almost twice as much as the pleasure of obtaining it, especially for something that was almost obtained.
2) Irrational loss avoidance: people take more risks to avoid a loss than to realize a gain.
When bets lose that look like they were going to win, the brain treats that almost-won money as if it were already in your bank account and stolen from you.
How this hurts decision quality:
1) It prevents people from deploying the appropriate amount of capital, even in instances when they have an advantage, because they are trying to protect their downside
2) When a near win becomes a loss, the natural instinct is to try to replicate the exact bet ("revenge betting") soon because a victory was so close
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